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Financial contagion in dynamic networks

The ability of individuals and institutions to lend funds to each other to pursue investment opportunities is crucial for the efficiency of the financial system, but, at the same time, it augments its fragility by increasing everyone’s exposure to an isolated shock. The aim of this project is to investigate this trade-off in an experiment. A particular focus is on how changing (i) the tightness of the lending environment, (ii) the attractiveness of investment opportunities and (iii) the size of shocks hitting the system affect the structure of the emerging financial network and its consequent robustness to systemic risk.